U.S. antitrust regulators fear "Rockstar" coalition could litigate Android phonemakers to death

The smartphone
war continues to rage on and Google Inc.'s (GOOG) Android has stepped out
into the lead. It outsold Apple, Inc. (AAPL) smartphones over 2 to 1 globally in the last quarter.
And minority players like Microsoft Corp. (MSFT) were struggling to cling
on to insubstantial market shares.

I. Google: Market Champion or Buying Time?

Android's race to the top was fueled by its support of an open ecosystem in
which players like Motorola Solutions Inc. (MSI),
Samsung Electronics Comp., Ltd. (SEO:005930), and HTC Corp. (TPE:2498)
could all make Android devices without direct licensing fees (Google profited
off of app sales and mobile advertising).

The result was an ecosystem which frequently delivered hardware that was more
advanced than Apple, Research in Motion, Ltd. (TSE:RIM),
and Microsoft's offerings. And not only was the hardware better, the
selection was broader too.

But despite the appearance that Android won, the ecosystem is now facing the
looming potential of doom. That doom could come thanks to Apple, RIM, and
Microsoft's growing portfolio of purchased intellectual property and desire to
sue Android handset makers into submission.

The combined picture is clear. Apple and Microsoft have sued or entered
into sweet licensing agreements with virtually every major Android maker (a few
like LG Electronics Inc. (SEO:066570)
have been spared, presumably on the merits of their smaller market share).

II. Android Faces Death by Multiple Means

The question becomes whether Android handset makers can remain viable in the
face of these lawsuits. While a $15 USD licensing fee to Microsoft might
not be lethal, if Samsung and HTC have to pay an additional $15 USD to Apple
and $15 USD to Oracle, the result may be the phones will become unprofitable.

On the other hand, if Google's handset partners refuse to play ball, they may
be forced to pay even worse damages by international courts.

Apple, Microsoft, and others have multiple routes to use
their intellectual property to kill Android.

Google hoped to win the portfolio, bidding $900M USD.
It insisted that its purposes for acquiring it would be peaceful.
In its blog its Senior Vice President and General Counsel Kent Walker explains,
"[O]ne of a company’s best defenses against ...
[patent] litigation is (ironically) to have a formidable patent portfolio, as
this helps maintain your freedom to develop new products and services."

The comment would prove fortuitous, as Google was beat by a shadowy bidder
calling itself "Rockstar Bidco". That bidder offered up $4.5B
USD, an offer that was embraced by a cash-thirsty Nortel, leave Google's
potential offer in the dust.

So who was Rockstar Bidco? Turns out it was none other than Apple,
Microsoft, RIM, and three other companies -- the same players who are working
to use their already substantial IP to try to sue or license Android handset
makers into the red.

IV. U.S. Antitrust Regulators May Step In

The plot to kill Android is so obvious that it has top antitrust experts
screaming foul. Robert Skitol, an antitrust lawyer at the Drinker Biddle
firm, opines in a Washington Postinterview, "Why is the portfolio worth five
times more to this group collectively than it is to Google? Why are three
horizontal competitors being allowed to collaborate and cooperate and join
hands together in this, rather than competing against each other?"

Brian Kahin, a senior fellow at the Computer & Communications Industry
Association, adds, "The one thing that's significant here is you have
three of the four smartphone platforms ganging up on the fourth. You want
patents for an economic benefit, not as a legal instrument."

The questions Mr. Skitol and Mr. Kahin raises are reportedly being echoed among
top U.S. antitrust officials. Pressure is mounting for the U.S.
government to block or place serious restrictions on the "Rockstar
Bidco" acquisition of the Nortel IP.

The American Antitrust Institute sent a letter to the U.S. Department of
Justice, begging them to limit the purchase.

The sale is set to be made official on Nortel's antitrust proceedings today,
though regulatory approval still awaits.

Mr. Walker says the outcome of the pending sale could be a matter of life or
death for the Android ecosystem and free market. He states, "This
outcome is disappointing for anyone who believes that open innovation benefits
users and promotes creativity and competition. We will keep working to reduce
the current flood of patent litigation that hurts both innovators and
consumers."

V. From Bully to Victim: Google's Unusual Situation

Google clearly won't go down without a fight, nor will its handset partners.
But if the intellectual property pressure grows too great, the Android
coalition may be rendered unable to compete.

The situation is highly unusual, due to a number of reasons. First,
Google itself is the subject of antitrust scrutiny on reports that it abused
its dominant Android position to bully service providers. Second, the
case represents a situation in which small players are able to team up and
legally damage a clear-cut market leader -- a relative rarity.

Thus Google -- which of late has become viewed as a bully of sorts -- finds the
tables turned, and finds itself a clear victim.

VI. The Big Picture

While the possibility that Android, a beloved smartphone institution, could be
sued out of existence by Apple, Microsoft, et al. is alarming to many, this
incident in many ways serves most of all to illustrate much broader problems
with the U.S. intellectual property system.

Companies in the U.S. are laying claim to increasingly generic intellectual
property and using that IP as instrument not to innovate, but to litigate.
The street runs two ways in most cases -- often times IP lawsuits are
followed by IP countersuits [1][2]. But often one player in the market is
using IP as the general bully, while the other is trying to defend itself.

Many argue the U.S. desperately needs intellectual property reform. But
the federal government under both former President George W. Bush (R) and under
President Barack Obama (D) has been slow to act.

The Nortel sale should offer a key signal to the market. If the federal
government blocks it, it may be a sign that the era of using IP as an offensive weapon is coming to an end. On the other hand, if it's approved without
restriction, it will offer a virtual blueprint of how to defeat your
competitor. If the latter scenario plays out consumers may find
themselves in an odd market where it's not the competitor with the best
products that wins, but the company with the best lawyers and patent portfolio.

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Or has the author allowed his love for Android to become so great that its has force his articles to become almost propagandistic in nature. I see it as a major problem that I can get more detailed information on the patent bids from places like Bloomberg than I can get here. While I come here and see an article full of conjecture, insinuations and uninformed opinions.

First, if I am not mistaken, there were alternative bid names used by multiple bidders including Google which used "Ranger".

The bidders started out as Google, Apple, Intel, Rockstar Bidco and NorPax. There were 19 rounds of bidding with Norpax bowing out after the first round. Who was the next to bow out? Rockstar Bidco (round 5). Intel bowed out next in round six. But instead of it being just Apple vs. Google. Apple grouped with Rockstar and Google grouped with Intel and bidding continued for 13 more rounds. Apple Rockstar won with a 4.5 billion bid.

Who made up Rockstar? Apple, RIM, EMC, Ericsson, Sony, and Microsoft all ended in the winning group. I don't know about you, I see an android handset manufactuer in there. I guess what can look forward to seeing Sony sue itself to make Android unaffordable for it to use in its smartphones. You know what patents Apple negotiated with RockStar to exclusively own? Nortel 4g patents.

All the bidders were approved by the U.S. and/or Canadian governments. So can someone explain to me how it is ok for Google with the most dominant position in the mobile smartphone to claim sole ownership of Nortel patents but its somehow wrong that a consortium of smaller players in the market to gain those patents.

Well said, dwalton. I totally agree. DailyTech is nothing more than a cheap tabloid pandering to a select audience (fandroids). It's a real shame it is associated with AnandTech, a site known for its technical excellence and impartiality. Personally I think AnandTech should divest any and all association with DT and leave it to flounder as the "niche" site it truly is, catering only the to the hard of thinking.

Each to his own though. I'm really looking forward to Win7/Win8 phone/desktop integration. I think Microsoft has the best platform for serious business users who run Windows on their PC desktop and laptop. Now, if you run a Mac you're probably not a heavy business user anyway so an iPhone is probably fine for you. My point is just that we each have preferences and MS has intellectual property that they earned and have a right to...just as Apple and Google does.

quote: I wish DT would atleast put the authors name on the title link.

You still don't have to read it. The author's name is right below the title after you click the link. It's not like you click a link and are suddenly incapable of pulling yourself away from the screen until after you've read it. That would be people jacking, not page jacking :)

Are you serious? I think the article makes it pretty clear that several of the companies listed as part of "Rockstar bidco" are horizontal competitors ganging up on the successful upstart (in the smartphone market) Google. Definitely anti-competitive behavior that offers no economic benefit to the consumer.

The way I look at it, patents were designed to protect innovations from being ripped off in the marketplace, not as tools that could be purchased and used to artificially deny marketshare for strong competitors.

By the way, while Google dominates the marketshare, they certainly do not dominate the profits. How would you like it if it was Google in place of Apple as part of the winning consortium? I would be just as upset if that were the case.

Or has the author allowed his love for Android to become so great that its has force his articles to become almost propagandistic in nature. I see it as a major problem that I can get more detailed information on the patent bids from places like Bloomberg than I can get here. While I come here and see an article full of conjecture, insinuations and uninformed opinions.

It's Jason Mick. It's his writing style.

Of course, he's on record as being an iphone owner, at least in the past, so calling him an android lover isn't quite applicable.

quote: Who made up Rockstar? Apple, RIM, EMC, Ericsson, Sony, and Microsoft all ended in the winning group. I don't know about you, I see an android handset manufactuer in there. I guess what can look forward to seeing Sony sue itself to make Android unaffordable for it to use in its smartphones. You know what patents Apple negotiated with RockStar to exclusively own? Nortel 4g patents.

Yes, but the exact details of who owns what isn't clear yet. And apple owning 4G patents is going to be leverage against a lot of people.

quote: All the bidders were approved by the U.S. and/or Canadian governments. So can someone explain to me how it is ok for Google with the most dominant position in the mobile smartphone to claim sole ownership of Nortel patents but its somehow wrong that a consortium of smaller players in the market to gain those patents.

Apple has almost 2x the money of Google in the bank. Microsoft and Apple are suing android makers for patent infringement. Google is NOT the dominant player in the smartphone market either.

Now tell us who Google is suing? And tell us why douchebags like Microsoft and Apple won't sue Google directly over Android?

quote: Apple, RIM, EMC, Ericsson, Sony, and Microsoft all ended in the winning group. I don't know about you, I see an android handset manufactuer in there.

So what if Sony/Ericsson does Android- there's a good reason why they're in the group- they're also a potential target for a lawsuit. Remember, Apple is going after hardware manufacturers rather than Google directly. By buying into a shared license, there is probably a clause that each company in this bidding consortium cannot sue eachother over competing products.

Sony might sell Android products, but buying into this buys them defense against lawsuits from other hardware makers/patent holders like Apple who are sue happy. This is an age where every company looks out for themselves regardless of who supplies them.

Sony being an Android device maker has nothing to do with the motivation behind the major players in this consortium- they were just smart enough to get Sony on board to help with the purchase- and with the combined market cap of Apple and Microsoft, they were smart to get behind it. Google, unfortunately, wasn't smart enough to get more handset makers in line to help.

Dailytech has been a tabloid for quite some time. I don't think I've read a single news story, that wasn't copy-pasted, that wasn't riddled with the author's biased comments or filled with insinuating questions.

Questions like "can they kill android?" are the lowest form of reporting. If you don't even have the information and the balls to bluntly say "This consortium is attempting to kill Android." why even ask such a ridiculous question in the first place? Oh right, because it's just a question. Out goes the responsibility when you're merely asking questions, regardless of how slanderous and ill-informed they are.

That said I do come to DT as it does a somewhat good job of aggregating tech related news. Find general information here, get the real story elsewhere.